How much should you spend on . . .

Housing? Groceries? The truthful, frustrating answer is 'it depends.' Now there's a simple -- but not easy -- way to figure it out, and it works regardless of your income.

For years, I struggled to help people answer a fundamental budgeting question: "How much should I be spending?"

Most who asked were looking for specific answers about what they should devote to various categories such as housing, food, transportation, utilities and so on.

The answer I used to give -- that there's no one-size-fits-all solution -- was really unsatisfying. It's true, of course, because people's circumstances vary so widely. But it wasn't very helpful to people trying to create a workable budget.

Then Harvard bankruptcy professor Elizabeth Warren and her daughter Amelia Warren Tyagi wrote a terrific book called "All Your Worth: The Ultimate Lifetime Money Plan," and I finally have an answer that works.

It's simple, if not easy. It's designed to work for any income. Its purpose is to help you live your life while building financial security and minimizing the chances a setback will send you over the edge.

It's the 50/30/20 budget. Here's how it works:

You start with your after-tax income. That's your gross pay minus any wage-based taxes, such as withheld income tax, Social Security and Medicare taxes, and disability taxes. If your employer deducts other expenses from your paycheck, such as 401k contributions, health insurance premiums and union dues, add those back into your net pay to get your after-tax income.

You aim to limit your "must-have" expenses to 50% of that after-tax figure. "Must-haves" include all the basic expenditures you really need to make each month: outlays for housing, utilities, transportation, food, insurance, child care, tuition and minimum loan payments. If you can delay a purchase for a few months with no serious consequences -- for example, clothing or dining out -- it's not a must-have. If you're contractually obligated to pay something (a credit card minimum, child support or a cell phone bill), it's a must-have, at least for now.

Your "wants" can consume 30% of your after-tax pay. Vacations, gifts, entertainment, clothes, eating out and other expenses are all "wants." Some bills you pay might overlap the two categories. For example, basic phone service is a must-have. But features such as call waiting or unlimited long distance are wants. Internet access and pay television are two other expenditures that can feel like must-haves but usually are wants, unless you're on some kind of long-term contract.

Savings and debt repayment make up the final 20% of your budget. Warren's a bankruptcy expert, remember, and she knows the devastation that results from too much debt and too little savings. To achieve financial independence and minimize the chances of disaster, you need to get rid of consumer debt, save for retirement and build your emergency fund. Any loan payments you make above the minimum belong in this category, as do contributions to your retirement and emergency funds.

(If you pay your credit cards in full every month, by the way, your credit card bills aren't debt. You don't assign the credit card payments themselves to categories; instead, you allocate each individual expenditure on the bill to its appropriate category and that's it.)

I said earlier that this budget plan isn't easy, and it's not. Limiting your must-haves to 50%, especially, is flat tough for most of us.

My husband and I make a generous income, and we have affordable mortgage payments and no other debt. But the first time I did this exercise, our must-haves consumed more than 60% of our after-tax income. It took a year of trimming, and some more income, to get us to the 50% mark.

We were lucky. I've heard from other people whose must-haves consumed 75%, 80% or even more of their after-tax pay. Fixing that can take a while.

You may be discouraged by how far you are from the ideal. But running the numbers can help you understand why your money isn't working for you. If basic overhead consumes so much of your paycheck, it's no wonder you have trouble saving, paying off debt and living the rest of your life.

If it's so hard to keep to the 50% limit, why do it? Several good reasons:

• It gives you flexibility. Your income could drop by half and you'd still be able to pay your essential bills. When your must-haves eat up more of your income, you have less ability to cope with setbacks such as layoffs, reduced work hours or unexpected expenses.

• It helps you figure out what you can and can't afford. If you're considering adding a loan payment or other contractual obligation to your overhead, you simply check to see if it would push you over the 50% mark. If not, you can consider adding the payment; if so, you don't.

• It gives you balance. Limiting your overhead allows you to have money for the pleasures in life, such as dinners out and vacations, without stress. It also allows you to get out of debt and save for your future.

So what should you do if your numbers are out of whack? Remember that the 50/30/20 plan is a goal to work toward, not something you'll necessarily achieve overnight. And if you're already in financial crisis -- you're unemployed, for example, or suffering through a disability -- true balance may have to wait until the crisis has passed.

But here are some places most people can tweak:

• Food. You've got to eat, but most of us could trim our grocery bills, often substantially, without too much effort. Plan your meals, cook from scratch, use up leftovers, clip coupons -- you know the drill.

• Utilities. You want the lights to stay on, but the air conditioner doesn't have to blast 24/7.

• Transportation. More carpooling and public transportation, less time alone in your car. If it's your car payment that's killing you, read "The real reason you're broke."

• Insurance. Higher deductibles can help reduce your premiums, as can shopping around and taking advantage of all available discounts. Ditch insurance you don't need, such as life insurance if you don't have financial dependents, or collision and comprehensive coverage on a clunker.

• Ditch the contracts. Early termination fees might make canceling your cell service too expensive, for example, but once your contract is up, consider switching to prepaid or pay-as-you-go service. Unless you're a real gym rat, gym contracts are another expense to shed as soon as you can. Consider paying by the visit or signing up at the local Y, which offers monthly billing without long-term contracts.

Other costs are tough to winnow but may be worth the effort. If you're paying too much for housing, you may need to consider a roommate or a move to cheaper quarters. If your child care expenses are eating you alive, brainstorm other alternatives. Several posters on the Your Money message board have found solutions, from sharing nannies to less-expensive day care (that turned out to be better) to changing their work hours so that one parent could always be at home.

You may think it's your income, rather than your expenses, that's the problem. That could be true, and if you can boost your income, go for it. But people can balance their budgets and save money on virtually any income, as MSN Money columnist Donna Freedman wrote in "Surviving -- and thriving -- on $12,000 a year."

If it's your debt that's unmanageable, you may need to consider some more drastic solutions -- credit counseling, debt settlement, bankruptcy or foreclosure. Some bills are simply impossible to pay, despite your best efforts, and you may need help or a fresh start.

Once you get back on your feet, though, the 50/30/20 plan can help you stay there.

Why this recession feels so bad

By some indicators, previous downturns were more severe. But none since World War II has caused so much pain on so many fronts.

What makes the current recession so bad? Other downturns have been more painful by some measures, but none since World War II has delivered so many severe blows to the economy at the same time.

Already it is the longest. The nonprofit National Bureau of Economic Research, which determines when the U.S. economy slips into recession, says the downturn began in December 2007, 19 months ago. That makes it longer than the wrenching, 16-month recessions of 1973-75 and 1981-82.

The unemployment rate is approaching the peak seen in the 1981-82 recession, and the scope of job losses is the worst since the 1948-49 recession. The decline in gross domestic product is the deepest since the 1957-58 downturn, and Americans haven't seen so much of their wealth evaporate since the Great Depression.

The NBER defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months."

Among the gauges the organization watches are GDP and employment, as well as income, sales and industrial output. Even if the current recession is, as many economists believe, at or near its end, it already looks worse than its postwar predecessors.

With a dwindling number of people who remember the Great Depression, the 1981-82 recession is many Americans' high-water mark for economic pain. To tame that era's rampant inflation, the Federal Reserve pushed short-term interest rates above 20%, slamming the brakes on the economy. Millions lost their jobs, pushing the jobless rate to 10.8%.

Last month, the unemployment rate hit 9.5%. But most economists forecast it will keep climbing even after the recession ends because businesses will remain cautious about hiring. Making matters worse, the economy needs to add some 100,000 jobs a month to keep pace with population growth.

While the unemployment rate isn't yet as high as in the early 1980s, the job losses associated with this recession already have been deeper because the downturn started with a lower unemployment rate than in the 1981-82 slump. Last month, there were 6.7 million fewer Americans working than in December 2007, when employment peaked -- a 4.7% decline, compared with 3.1% in 1981-82.

"In terms of employment, we're now way past 1982 and we're just about to cross the worst postwar recession, which was 1948," says Stanford University economist Bob Hall, who heads the NBER's recession-dating group.

In 1948, the demand that built up during World War II rationing programs had been sated. Companies, left holding more inventory than they could sell, throttled back production and laid off workers. The recession that began that year pushed payrolls down by 5.2%. Jobs recovered quickly, however, after the excess inventory was cleared away.

In contrast, the past two recessions, in 1990-91 and in 2001, saw payrolls decline long after the economy began recovering. That lagging drop is a shift in the way jobs respond to downturns that economists worry will continue.

Recent downturns have also been less abrupt, in part because the manufacturing sector, which responds to trouble by slashing production, is no longer as large a part of the economy. The declines in GDP -- the value of all goods and services produced -- associated with the 1990-91 and 2001 recessions were slight.

That makes this recession's decline in GDP striking.

Through the first quarter, GDP was down 3.1% from the peak it reached last year. The only post-World War II recession more severe was in 1958, when the United States was a manufacturing powerhouse. After consumer spending cooled in response to Fed rate increases, manufacturers ratcheted back, sending GDP down 3.7%.

But the Fed cut rates, and the economy recovered quickly, making the downturn one of the briefest ever.

"A normal postwar recession ends when the Fed thinks it's done enough to fight inflation," says Brad DeLong, an economic historian at the University of California, Berkeley.

But this downturn was set off by a housing and credit collapse, making Fed rate cuts less effective in spurring growth.

Economists believe Friday's GDP report will show the economy contracted again in the second quarter and that, in combination with downward government data revisions, could make this recession's GDP drop even larger than 1958's.

The good news: This recession's drop in household income hasn't been nearly as severe as one of its predecessors. That is partly because many states have extended unemployment benefits. It also is because workers haven't seen their earning power eaten up by rising prices.

That wasn't the case in the recession that stretched from 1973 to 1975, when food and energy costs jumped. Adjusting for inflation, U.S. household income fell 5.3% during that period. In the current recession, it has fallen 3%.

But this recession has eaten away at Americans' wealth like never before.

Falling home prices have decreased the equity households have in their homes -- that is, the value of their homes minus what they owe on them -- by $5.1 trillion, a 41% drop. They also have lost trillions of dollars in the stock market. No other episode of wealth destruction since the 1930s comes close.

As households work to rebuild the stores of wealth they lost, they are spending less. Although spending has recovered a bit, it is still an inflation-adjusted 1.9% below its peak 2008 levels.

Only two other downturns have had comparable spending drops. In the 1953-54 recession, when Congress added to the Fed's inflation-fighting efforts by extending an unpopular tax on corporate profits, spending fell by as much as 3.3%. That drop was matched in 1980, after President Jimmy Carter, in an attempt to rein in inflation, persuaded the Fed to introduce stringent controls on the use of credit.

Reversing those policies, and getting spending moving again, was relatively easy. But reversing the drop in wealth isn't. That means that tepid consumer spending could be a drag on the economy for years to come.

7 dividend stocks you can count on

Rising payouts to investors usually means a company is strong right now and confident about its future. These 7 pay out more and more, year after year.

After many dark months, investors' appetite for risk is back, prompting a buying binge that is driving up the value of some pretty speculative stocks and asset classes.

You can play the momentum game, hoping to enter and exit a hot stock at just the right juncture. Or you can ignore the siren song of quick but highly uncertain gains and instead invest for the long term, using the tried-and-true technique of identifying companies that regularly raise their dividends.

History is on the side of the dividend strategy. Howard Silverblatt, of Standard & Poor's, calculates that from 1926 through March 2009, reinvested dividends accounted for 44% of the 9.5% annualized return of the S&P 500-stock index ($INX). From 1972 through April 2009, dividend growers returned 8.7% annualized, according to Ned Davis Research, compared with 6.2% for the S&P 500 and just 0.7% for stocks that paid no dividends.

Why has a dividend-growth strategy stood the test of time? First, to commit to boosting its payout, a company must be financially strong and confident that its business plan will generate a stream of profit and cash flow. A growing payout, says Judy Saryan, the manager of Eaton Vance Dividend Builder fund (EVTMX), is the "best, most tangible signal that a company's board of directors and management have confidence in future cash flows."

Saryan notes some subtle effects of managers' commitment to boost the distribution annually. Shareholders' anticipation of that dividend check forces a company's leaders to be more disciplined with their cash and more careful in selecting capital projects. Paying dividends discourages dubious accounting: The company must have the real money to make the payments.

Coke: The real thing

The trick is to identify companies that have the stamina to keep increasing dividends for many years -- and to acquire their stocks at reasonable prices. A sustainable business model is crucial. You want a company with a strong balance sheet, robust free cash flow (the money left over after capital expenditures needed to maintain the business) and a high return on equity, which enables the business to pay out a handsome dividend while also reinvesting in its growth.

One way to analyze the expected return on a dividend-growth stock is to compare it with a U.S. Treasury bond. Let's take the example of Coca-Cola (KO, news, msgs). Over the next four quarters, Coke should pay a dividend of close to $1.70 a share; based on its recent share price, that's a yield of 3.4%, slightly less than the 3.9% yield of a 10-year Treasury.

But compare the potential of the two investments over the next 10 years. Let's say that both Coke's earnings and its dividend grow by 8% per year. Over the next decade, that 3.4% yield will swell to 7.3% based on today's share price (and, for the truly patient investor, to 15.9% after 20 years), while the fixed-income Treasury will still return a bit less than 4% for someone who buys the bond today. Moreover, assuming the price-to-earnings ratio remains the same, you'll earn an annualized total return of 11.4% (3.4% annual yield plus 8% annual capital appreciation), compared with roughly 4% for the Treasury. If the P/E rises, you will earn more than 11.4%; if it declines, your return will be less.

Coke, which has raised its dividend for 47 consecutive years, certainly passes the endurance test. Its iconic brands, unparalleled global distribution network and steady growth in beverage volumes generate high returns on capital and free cash. Goldman Sachs' Judy Hong calculates that Coke's cost of capital is less than 8%, compared with its return on invested capital of 18%. No wonder Warren Buffett's Berkshire Hathaway (BRK.A, news, msgs) is Coke's largest shareholder.

Philip Morris: Ugly wares, nice numbers

We know many of you are averse to investing in tobacco companies. But if you're not, you'll appreciate the striking financials of Philip Morris International (PM, news, msgs), the world's largest publicly traded tobacco company. Based in New York City, Philip Morris books 100% of its sales outside the U.S. The maker of Marlboro generates an eye-popping 60% return on equity, partly because its stable, predictable cash flows allow it to carry more leverage on its balance sheet. Capital-investment needs are nominal, which helps it produce $7 billion of free cash flow a year. At the current dividend rate of $2.16 per share, the stock yields a sturdy 4.9%.

Philip Morris' outlook is bright. Consumption of cigarettes is shrinking in Western Europe and Japan but growing briskly in emerging markets, where Philip Morris earns the bulk of its profits. Overall, the number of cigarettes sold is growing just 1% to 2% a year, but the company has an unusual ability to raise prices -- one advantage of selling an addictive product. Philip Morris thinks it can boost earnings per share 10% to 12% a year over the long term and has committed to paying out at least 65% of its earnings in dividends. Big, ugly tobacco companies like this one tend to treat loyal shareholders well.

Sysco: Dominant food supplier

Let's move to a predominantly domestic company, Sysco (SYY, news, msgs). The leader in its field, Sysco distributes food to hospitals, hotels, campuses, restaurants and company cafeterias across the U.S. It has a peerless distribution system, with the most warehouses and delivery trucks through which to push growing volumes of food and related supplies (annual revenues are $37 billion).

Earnings may be flat this year because Americans aren't eating out as much. But as Cliff Remily, associate manager of Thornburg Investment Income Builder fund (TIBAX), says, Sysco's history suggests that it will emerge stronger after the recession because it's a serial consolidator (more than 100 acquisitions in 40 years) and by far the largest and strongest player in a fragmented industry full of mom-and-pop outfits.

Sysco has a sterling dividend record (the payout has compounded by 18% per year over the past decade) and, at a 4% yield, the shares are as cheap as they've ever been. Companies such as Sysco and Philip Morris International are in the dividend sweet spot, offering a combination of relatively high yield (4% to 5%) and the prospect of being able to boost their dividends by 10% or more annually.

2 health care giants

The medical sector has historically yielded many dividend-growth champions. Leaders tend to be mature, financially solid companies that generate relatively dependable cash flows in economies both buoyant and sour. Health care now faces more regulation, litigation, and pricing and patent issues than in the past, so the search is a bit trickier -- witness Pfizer's stunning dividend cut earlier this year.

Two standouts in health care are Abbott Laboratories (ABT, news, msgs) and Becton Dickinson (BDX, news, msgs). Both are well diversified and should be able to boost earnings by at least 10% even this year, during the worst recession in decades.

Abbott has a handsome growth profile with products such as Humira, a leading rheumatoid arthritis medication (protected by patent until 2016); Lasik eye-surgery devices; the vascular industry's top drug-delivering stent, used to unblock coronary arteries; and hand-held glucose monitors for diabetics. The Abbott Park, Ill., company is a model of consistency, having raised its dividend for 37 straight years. It plows 9% of its sales ($30 billion) into research and development each year.

Like Abbott Labs, Becton Dickinson makes more than half of its sales abroad. This venerable company (founded in 1897 and based in Franklin Lakes, N.J.) made its name in needles and syringes, and is also a big supplier of surgical scalpels and blades. A sticky business, to be sure, but as Larry Coats, of Oak Value fund (OAKVX) says, safety is paramount, so hospitals and doctors offices are unlikely to try other, unknown suppliers of such skin-piercing devices. BD also has good businesses in catheters, insulin-delivery products and infectious-disease diagnostic systems.

BD is resistant to recessions. This year the company raised its dividend by 16% -- not many companies can match that increase -- and distributions have grown an annualized 21% over the past five years. The stock yields just 2%, but the company, which pays out only 25% of its earnings, has plenty of resources to keep those dividend increases flowing.

Indeed, a successful dividend-growth strategy involves identifying low-yielding stocks with very promising growth prospects, as well as higher-yielding, more-mature companies with less-exciting growth profiles. Fast-growing companies typically retain a high portion of their earnings, which they plow back into attractive reinvestment opportunities.

Accenture: High-growth consultant

Don Kilbride, the manager of Vanguard Dividend Growth fund (VDIGX), employs a "barbell" approach in his portfolio. At one end are dividend bluebloods, such as Johnson & Johnson (JNJ, news, msgs). At the other end of the barbell is a new generation of dividend payers with plenty of room to grow.

One Kilbride favorite is Accenture (ACN, news, msgs), formerly Andersen Consulting, which went public in 2001 and paid its first dividend in 2005.

When you look at the financial statements of this management-and-technology consulting firm (which competes with the likes of IBM), it's clear that this is a phenomenal business. Headquartered in Bermuda, Accenture employs 181,000 workers around the globe in 200 cities and 52 countries. It has $3 billion in cash and no debt, and it generates $3 billion of free cash flow per year on revenues of $26 billion.

Because the company spends only about 10% of its cash flow each year on capital investment (the business doesn't have much to invest in except its people), it returns the bulk of its cash to investors in the form of share buybacks and dividends, which have mounted by 19% a year since their initiation. The business has held up well through the recession because clients seek Accenture's advice for improving efficiency in areas such as inventory management.

Total: Big Oil, French-style

We'll leave you with a major energy company, France's Total (TOT, news, msgs). Big domestic oil companies such as Exxon Mobil (XOM, news, msgs) and Chevron (CVX, news, msgs) have outstanding records of boosting dividends over the long haul, and we expect the same from Total.

Consumers are hooked on oil. Economists call this inelastic demand, which is fairly uncommon with merchandise. When producers of inelastic goods increase prices, demand declines only slightly, resulting in a net increase in revenues. (By contrast, when producers of products with elastic demand, such as autos and furniture, try to raise prices, doing so leads to revenue declines.)

Total's stock serves up a generous 5.4% yield, and the company has boosted dividends at an annualized rate of 14% over the past four years. Kilbride compares Total to Exxon Mobil in terms of financial discipline, skilled allocation of capital and execution of large projects. Total is also particularly well placed in important production-growth areas, such as West Africa. Socially conscious investors, take note: Total deals with regimes in countries (such as Venezuela and Myanmar) where U.S. energy firms dare not tread.